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Pensions and power

I have been avoiding writing about the University & College Union strike over pensions. My general view – which people argued with me about on Twitter last week – is that it’s almost impossible for someone outside the dispute to have a reasonable view about it, and everything I’ve read has basically reinforced that.

But there comes a point where the terrible shallowness of everybody’s analysis becomes a reason to talk about it, not to just avoid the topic. Danny Finkelstein had a piece in the Times this morning which, while obviously designed to provoke, gets the issue wrong in a way that’s kind of illuminating.

Here's a very quick summary of the dispute. The Universities Superannuation Scheme (USS) is undergoing its regular valuation process, as required by the pensions regulator. The valuation has shown that the scheme has a significant deficit, which requires redress. Coming up with a solution is a task for the Joint Negotiating Committee, which has eight employer representatives from Universities UK, eight union representatives, and a neutral chair.

The JNC did not produce a consensus decision. Employer representatives put forward the dramatic proposal to shift the entire scheme from a defined benefit ('final salary') system to a defined contribution arrangement. The union made an alternative proposal to slightly reduce benefits and significantly increase the contributions paid by both employers and employees. Their proposal didn't comply with the regulatory deficit-reduction requirements, and eventually the neutral chair voted with Universities UK in favour of the major overhaul. At that point, UCU announced that it would be taking industrial action, which it had balloted for late last year.

That may sound like a very one-sided account. It both is and isn't. It sounds like the union is being very unreasonable, but the reality is that the employers in this dispute have essentially been empowered to define 'reasonableness' on their own terms.

So this is where things get thorny. The pension scheme's deficit is the output of a complicated actuarial process, not an observable fact, and UCU's position is that the valuation is wrong. If you want the details of this, look elsewhere - Michael Otsuka has been blogging about the issue for a long time - but the core claim is that the USS trustee has adopted a valuation methodology which overstates how much salaries (and so, in turn, salary-linked pension costs) will rise and understates the return the fund will get on its assets. That's what leads to the large deficit figure and the regulatory requirement to propose a remedy. So UCU, basically, has refused to play ball: they're not offering a solution to a crisis whose terms they think are entirely manufactured.

This isn't exactly a decision made by the employers. The USS trustee is independent. But only a little bit. The assumptions in the valuation methodology that UCU disagrees with have clearly been influenced by employers' input that the scheme should be managed in a highly prudent manner to avoid unaffordable emergency contributions in the future. That's not, in and of itself, nefarious. The universities contribute most of the money the fund manages and are the ones on the hook if investment planning isn't prudent enough. They should be listened to! (The presence of several vice-chancellors in USS administration, on the other hand, looks more straightforwardly dubious.)

In this case, though, the result is that the employers (seemingly led by a group of Oxford and Cambridge colleges) have managed to turn their end-goal for the negotiations - a pension scheme in which they bear less investment risk - into a procedural rule on what outcomes are acceptable. UCU does not have that structural advantage, and so has to rely instead on quite misleading claims about some very opaque modelling they've had done, and on winning sympathy from students and the public. When Danny Finkelstein says that strikers are demanding that their pensions be managed recklessly, he's missing that this framing of the issue is one universities have created to tilt negotiations towards their preferred outcome.

I have absolutely no idea whether it's true that pension contributions above the current 18% rate would cause significant problems for universities, as they say. What I wanted to say on Twitter last week is that I'm not optimistic about the prospects of journalists coming up with a clear and independent answer to that question.

What we can know for sure, though, is that this dispute is not happening on a level playing field. That's why, even though I tend to find defined benefit pensions ridiculous - blame my Australian upbringing - I think everyone should support this strike. One thing we can be confident of is that workers do not get fair outcomes when the bargaining environment is weighted against them. In circumstances like these employers have the whip hand with respect to how pension trustees behave and how the regulatory requirements are interpreted. Serious industrial action is one of the only powerful tools workers have to counter with, but they need solidarity to be able to use it.